Innovative Financing for Education: Arguments, Options and Implications

Traditionally, there have been four sources of funding for education. Governments have used taxation to pay for public education, the private sector has mostly relied on tuition fees that are charged to the student and his/her parent/guardian, religious organizations have contributed financial, human, and infrastructure resources, and in many developing countries aid flows have funded a significant proportion of educational expenditures. The proportion of each has tended to vary across countries yet the most important source of funding for education, in most countries, is and continues to be the state, by relying on various forms of taxation. Private schooling has expanded rapidly in numerous countries in the last two decades and tuition fees, charged to students/parents, have gained importance as a source of financing for education. Aid flows have remained a relatively small, though not unimportant, source of funding.

Over the last few decades, mostly as a result of direct or indirect effects of the Washington Consensus and World Bank/IMF positions on how economic governance should be structured, governments, especially across the developing world, have instituted structural adjustment programs focusing on privatization, liberalization, decentralization and ‘right-sizing’ of the government. This has, in general, resulted in reduced public commitments to education, lower fund availability from the state, and an increased role of the private sector in education. In many countries, the state has, effectively, pulled back from taking responsibility for ensuring access to quality education for all.
 
This has created a problematic dynamic. On the one hand, there is the realization of the need to educate all children, and national and international commitments push in that direction. On the other hand, traditional sources of funding, such as state funding raised through taxes and international aid, are either decreasing or not increasing rapidly enough to address the financial need and challenge. Tuition fees, as well as unregulated informal payments, have become more significant as a source of funding but, in the main, only work for children/parents who can afford to pay for an education. Additionally, given the need to educate all children at a certain level of quality, tuition fees do not present a policy solution to the fiscal problem of education financing, which leaves out the bottom 40-50 percent of the population of most developing countries and ushers in problematic governance and social justice implications. These complexities do not mean there should be no pressure on governments to increase funding for education, clearly, that has to continue, but in addition, other and non-traditional sources of funding are desperately needed.
 
The summer school on Innovative Financing for Education will introduce participants to the complex political economy of financing for education. With the funding gap for achieving global targets for education estimated at $26 billion per year, the dynamic between commitment to education for all and reduced financial space from traditional sources needs to be appreciated before moving to any discussion of financing issues specifically. After a detailed look at the traditional sources of funding and the dynamics determining their current limits and future prospects, the course will move to introducing broad ideas for possible and non-traditional sources of finance for education.
 
It will then examine in detail some specific instruments and approaches that have been or are being developed and how they have been, or can be, deployed, including those that ESP has been at the forefront of supporting and developing; Diaspora Bonds for Education, Education Venture Fund, Equity-focused Impact Investing, and Debt Swaps for Education.  
 
At the end of the course the participants will have a much deeper appreciation of the political economy in which education finance issues are embedded, the current dynamics regarding traditional sources of finance, current and under-development possibilities from non-traditional sources, and future directions in which this work can develop.
 
The early part of the course, on political economy and traditional sources, will rely on published sources and case studies from countries ESP works in while the latter part of the course, on specific non-traditional instruments, will be built on the work that ESP has been doing and/or funding in the area.
 
The summer school remains a unique opportunity to bring world-class thinkers, advanced graduate students, and development professionals in education financing together with state-of-the-art instruments for a five-day course, which is unprecedented in the field of education and development.